The Hidden Risk in State Pensions: Analyzing state pensions’ responses to the climate crisis in proxy voting

By Jessye Waxman, et. al - Sierra Club, et. al., January 2024

Climate-driven heat waves, droughts, floods, hurricanes, and wildfires are already causing suffering for hundreds of millions of people worldwide. Climate-driven impacts on the economy are already significant: according to one recent peer-reviewed study, the climate crisis inflicted a global economic toll of $16 million an hour in extreme weather damages between 2000 and 2019. Given that these impacts are occurring at only 1.2°C of warming, it’s no wonder that economists, financial institutions, and financial regulators are increasingly worried about the risk that the climate crisis poses to our shared economic prosperity.

“The financial impacts that result from the economic effects of climate change and the transition to a lower carbon economy pose an emerging risk to the safety and soundness of financial institutions and the financial stability of the United States,” concluded the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in a recent report, making it clear that climate-related financial risks are faced by all financial institutions and the broader economy. As long-term fiduciaries, pension funds should be among the investors most alarmed about the economic risk associated with the climate crisis. Some have taken public strides forward, such as announcing net-zero pledges, investing in climate solutions, or defending the right to invest responsibly. These are critical steps forward. However, as this report shows, the institutions responsible for stewarding trillions of dollars on behalf of the American people are failing to address climate-related financial risk in their proxy voting strategies, a key tool investors have to encourage responsible corporate governance and corporate behavior.

This report analyzes the nineteen state pensions in states where a state financial officer — such as the state treasurer, comptroller, or auditor — has indicated it is a priority issue to advocate for more sustainable, just, and inclusive firms and markets, and protect against climate risk. In addition to the nineteen state pensions, the report includes the five systems managed by the New York City Comptroller, who has also indicated these issues are priorities. These funds included collectively represent over $2 trillion in assets under management (AUM).

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Disclaimer: The views expressed here are not the official position of the IWW (or even the IWW’s EUC) and do not necessarily represent the views of anyone but the author.